After a period of weakening, the tax-exempt market proved it was able to digest the large amount of supply as munis strengthened Wednesday and prices in the new-issue market were bumped.
“There is still hefty appetite out there,” a New Jersey trader said. “Keep in mind there is $40 billion in coupon payments and redeemed bonds that need to be replaced.”
He added deals this week have gone surprisingly well. “Connecticut was priced 38 basis points through the Municipal Market Data scale and was well-received,” he said, referring to the $523.7 million general obligation bond deal. “It surprised a number of people who were told it may come cheaper, but they ended up bumping the deal to a 38 basis point spread.”
The $1.8 billion Dormitory Authority of the State of New York general-purpose personal income tax deal went well, too. “It just got done and they bumped that scale,” the trader said. “So there is plenty of money to be put to work here. And a lot of people need to replace bonds that are called and there is interest coming in they need to put to work.”
Munis are primarily being driven by supply and demand, as well as Treasuries. “The bottom line is munis are still very attractive to Treasuries,” he said. “There is a little uneasiness when investing at equities at this point. So deals keep coming and keep getting done. And I don’t see that changing.”
Other traders noted the market has stayed active. “It’s still pretty busy,” a New York trader said, adding the secondary saw action Wednesday morning after most of the week’s largest deals were priced on Tuesday. “Most of the action is in the quoted bond markets.”
Munis ended stronger Wednesday, reversing two days of steady or weaker munis, according to the MMD scale. Yields inside seven years were steady while yields outside eight years fell as much as two basis points.
On Wednesday, the 10-year and the 30-year yields each fell two basis points to 1.89% and 3.18%. The two-year was steady at 0.32% for the ninth straight session.
Treasuries were stronger Wednesday after a weaker session Tuesday. The benchmark 10-year yield dropped seven basis points to 1.60% while the 30-year yield fell six basis points to 2.71%. The two-year yield fell one basis point to 0.30%.
In the negotiated market, Goldman, Sachs & Co. priced and repriced for institutions $1.8 billion of DASNY personal income tax revenue refunding bonds. The bonds are rated AAA by Standard & Poor’s and AA by Fitch Ratings.
Yields ranged from 1.08% with 1.5% and 5% coupons in a split 2017 maturity to 3.60% with a 4% coupon in 2033. The bonds are callable at par in 2022. Yields were lowered as much as three basis points from preliminary pricing.
Loop Capital Markets priced $143 million of Cook County Forest Preserve District GOs in three series, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch.
Yields on the first series, $31.6 million of unlimited-tax GO refunding bonds, ranged from 0.79% with a 3% coupon in 2014 to 2.93% with a 5% coupon in 2022. Bonds maturing in 2012 and 2013 were offered via sealed bid. The credits are callable at par in 2022.
Yields on the second series, $54.9 million of limited-tax GO project and refunding bonds, ranged from 0.79% with a 3% coupon in 2014 to 4.04% with a 5% coupon in 2037. Credits maturing in 2012 and 2013 were offered via sealed bid. The bonds are callable at par in 2022.
Yields on the third series, $56.5 million of unlimited-tax GOs, ranged from 0.79% with a 3% coupon in 2014 to 4.04% with a 5% coupon in 2037. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
In the competitive market, the Port Authority of New York and New Jersey auctioned $600 million of revenue bonds in two pricings, each $300 million.
Citi won the bid for the $300 million of short-term notes, rated MIG-1 by Moody’s, SP-1-plus by Standard & Poor’s and F1-plus by Fitch. The debt had a 1% coupon and prices were not formally reoffered.
Citi won the bid for the second $300 million of revenue bonds, rated Aa2 by Moody’s and AA-minus by S&P and Fitch. Yields ranged from 2.27% with a 4% coupon in 2021 to 3.60% with a 4% coupon in 2032. Credits maturing in 2018 and 2020 were not formally re-offered. The bonds are callable at par in 2022.
While most deals have gone well given the large amount of supply, a few deals were postponed, including $773.8 million of Alabama Black Belt Energy Gas District project revenue bonds and $575 million of Detroit water and sewerage department bonds.
“The Detroit water credit was not looked at as one of the better credits,” the New Jersey trader said. “So, unless they get a pretty clear demand going into a loan like that, I’m not surprised it was postponed. And I tend to think the same case happened in the other deal.”
It’s all a matter of timing, he added. “You don’t want to bring deals like those when there is $6 billion in other major deals people are focused on,” he said.
In the secondary market, trades compiled by data provider Markit showed a mix of stronger and weaker munis. Yields on Ysleta, Texas, Independent School District 5s of 2023 and Metropolitan Pier and Exposition Authority 0s of 2041 each fell two basis points to 2.37% and 5.35%, respectively. Yields on Shelby County, Tenn., 5s of 2022 and Lincoln West Haymarket Joint Public Agency 5s of 2021 each rose two basis points to 2.09% and 2.10%.
